Before 2007, we used to merely advise our clients on their finances. But after doing CFP, I realized the importance of financial planning and goal based solutions. We started doing financial planning for a couple of clients. Realizing how relevant it could be in our client’s lives, we decided to transform our business to financial solutions and goal based planning from advice on products.
Before charging fee, I broached the topic with a few clients. Initially, the response was mixed. But my concept was simple - people will need advice for sure and the need is going to increase in the days to come. We wanted to add much more value to our clients and by paying fee they were getting value worth each paisa.
Client reaction
You can say initially only 20% of clients were ready to pay fee. The rest of them may move to different advisors. But after sub-optimal returns on their portfolio they came back to me eventually and I was glad that I stood to my decision on charging fees.
The fact remains people who are serious about wealth creation and goal based planning are ready to pay a fee. In fact, I did not market myself after we started charging fee as my existing clients gave enough unsolicited referrals!
Fee structure
While on-boarding, we charge a minimum fixed fee which includes preparing the basic financial plan. If they wish to implement the financial plan then we charge annually depending upon their AUM. Fees also differ depending upon the level of engagement with the client’s portfolio.
The mind-set problem
Advisors should understand that they are the ones who match the client’s needs, goals with the right products A newspaper columnist or television expert focuses only on the generic merits of the products and not on specific needs of individual people. It is we who offer customized solutions and help our clients achieve their financial goals.
There is lack of confidence among the advisors because they fear losing clients. But advisors need to be absolutely clear in the value addition they create. One will have to believe that your services are worthy enough to charge a fee. Your clients may shift to the other advisors but eventually they will realise your value proposition.
Advice to fellow advisors
It is certainly a challenge for advisors who are shifting from a distribution model to a fee based RIA model. Clients will be obviously reluctant to pay for your services if they haven’t done it earlier. But taking that leap of faith is worth it if you are crystal clear on what value addition you will be providing to your clients.
